The debut of PetroChina on the A-share market has made another
world first created in China.
As it finished its opening day trading on the board in Shanghai
on November 5, the country's leading oil and gas producer was
crowned as the world's largest company after its shares surged 163
percent to hit 48.62 yuan (US$6.53).
PetroChina so became the world's first US$1 trillion company
calculated by its closing price of 43.96 yuan on the day of its
debut.
Though with profit of just half of that of rival Exxon, the
company's combined shares were greater in value than the combined
stock of Exxon and Royal Dutch Shell.
"It is ridiculous. As both are producers in a free trade global
oil market, shares of PetroChina should not be so much more
expensive than that of Exxon." Frank Gong, chief economist with
JPMorgan Securities Asia-Pacific says.
Yet it is a record that can happen on the A-share market. The
imbalance between stocks and liquidity on China's stock market - or
limited share supply verses a flush of money at home with few
channels for outflow - has pushed A-share prices, especially those
of blue chips, to create continuing new highs. It was no exception
for PetroChina.
In October of last year, after the Industrial and Commercial of
China (ICBC) floated it's A shares in Shanghai, the market created
the world's highest-valued bank, exceeding Citibank.
Five Chinese companies now rank in the top-10 largest companies
by market value as calculated on November 5 due to their high
prices on the A-share market.
China Mobile and the ICBC respectively rank No 4 and No 5,
following Exxon and General Electric. Also among the top are
Sinopec and China Life, ranking No 7 and No 10 respectively.
The P/E (price-to-earnings) ratio of the ICBC had reached 30
times in Shanghai, while its rival Citibank has a P/E ratio of 11
to 12 times. The disparity justifies investor worries that the
market might have become too expensive.
"Comparatively, these companies' H shares traded in Hong Kong
are more reasonable," Gong says.
For example, the H shares of PetroChina were trading around 17
yuan on November 5, while its A shares traded at a premium of about
150 percent over that.
"If the government does not find effective ways to siphon off
excess money, it could lead to a bubble sooner or later," says
Gong.
"In that direction, I am afraid that one day the mainland stock
market might have to replicate the failure history of the Japanese
stock market."
Some good news is that the stock market has been weighed down by
expectations of further interest rate hikes, and the anticipation
of a high October consumer price index, scheduled to be release
tomorrow.
The People's Bank of China (PBOC) on Thursday announced it might
use a variety of measures, including bank and treasury bond issues
and reserve ratio requirements, to control the country's "severe"
liquidity problem.
"China still faces severe situations on liquidity. The role of
price levers will be strengthened while the use of interest rates
and exchange rates policies will be more coordinated so as to
stabilize inflation anticipation," the central bank said in its
latest report.
The Shanghai Composite Index dropped as much as 4.85 percent on
November 8, partly due to fears of further tightening measures, a
perception strengthened by the PBOC report.
PetroChina retreated 5.54 percent that day to 38.19 yuan per
share, shrinking more than 20 percent from its landmark debut in
Shanghai four days before.
"Alongside the market situation, the fact that PetroChina will
be included in the main index on November 19 also contributes to
the drop," Tian Yan, analyst with Guoyuan Securities says.
The company will be weighted 25 percent in the Shanghai
Composite Index in terms of market capitalization.
With that, it is expected to hinder investors from a heavy
speculation out of concern that it may otherwise lead sharp
fluctuations in the major index.
Excess liquidity is not a problem that can be handled at a short
time, analysts point out.
"In fact, with the impact of the US subprime credit crisis and a
looser monetary policy in the US, more hot money is expected to
flow into Asian market, especially the A-share market," Liu Kan,
senior analyst with Hualin Securities warns investors, adding last
week's market correction may be temporary.
"It may rebound soon. Blue chips, especially State-owned large
enterprises, which will benefit the most from a strong economy may
continue to rise," he says.
(China Daily November 13, 2007)
